As Premier Alden McLaughlin rightfully emphasized in his policy statement delivered Monday to the Legislative Assembly, the Cayman Islands’ ability to present a credible budget plan is of the utmost importance to improving our relationship with the U.K. and restoring investors’ confidence in the jurisdiction.
In addition to the 2013/14 budget, the U.K. has also approved the government’s four-year fiscal plan through 2016/17.
That is all welcome news and demonstrates this country should be entirely capable of managing its resources astutely within the bounds of the Public Finance and Management Law. With the appropriate discipline, Heaven willing, it is not unfeasible that the jurisdiction could eliminate its debt burden within a generation’s time – a goal toward which far mightier nations, including our Mother England, cannot practically aspire.
Such an achievement would be on par with the “Cayman miracle” that has brought financial services firms, droves of tourists and billions of dollars to these shores.
However, as the saying goes, “God is in the details.”
In this case, the projected $100 million operating surplus may not be all that it appears. First off, any set of numbers produced by Cayman’s government – particularly projections – merits strict scrutiny.
Over the past four years, forecasters have missed core government revenue targets by anywhere from 2 to 11 percent, and have erred on expenditures by 2 to 7 percent. While government has achieved operating surpluses in three of the past four years, the actual surpluses ended up being lower than projected in two of those years, and in one year the projected surplus turned out to be a deficit.
Another caveat is that even those “actual” figures are not audited. In other words, they can’t be relied upon with certainty. The auditor general is working on conducting audits of financial statements for the entire public sector for previous years. Unfortunately, but predictably, thus far those reports contain disclaimers of opinion, which means auditors can’t present an opinion on the financial statements because of a lack of supporting evidence.
For the moment, though, let’s assume the government’s projections for the upcoming year are accurate. Even then, the CI$100 million operating surplus may be a bit misleading – not a financial services professional – but to the typical layperson.
The key phrase is “operating surplus,” which means it does not include payments on debt principal or capital costs, which are accounted for on separate financial statements. Subtracting those budgeted amounts from the operating surplus yields a true surplus of about CI$22 million, or about 3 percent of core government’s operating budget of CI$645 million.
While a CI$22 million surplus is not the same as a CI$100 million surplus, it’s still darn good.
We’ll add that, in our opinion, paying down Cayman’s debt and purchasing material assets are appropriate and worthy uses of surplus funds.
However, if government really anticipates having more money than it will spend, we must question the timing of the proposal to implement a licensing and registration fee for directors of hedge funds registered in Cayman.
In theory, the rosiness of government’s projections should forestall the need for any new taxes at all, especially on our financial services sector, which competes for business across the world based on marginal cost differences.
If our government has more than enough, why is it asking for more?